Demand Questions Surface in Delta, US Airways Reports

Delta and US Airways both reported disappointing unit revenue in March, raising questions about demand.

CHARLOTTE ( TheStreet) -- Airline shares are closing out a bumpy week as the vision of a finally rational industry was challenged by disappointing unit revenue numbers from two major carriers.

On Tuesday, Delta ( DAL) reported that March revenue per available seat mile gained 2%, below guidance of 4%. On Wednesday, US Airways ( LCC) reported flat March PRASM, below guidance of 2% to 4%.

The two airlines both put some of the blame for lower PRASM on the sequester, suggesting that it reduced travel. Delta also listed a variety of other factors, including the impact of a weakening yen as well as "lower than expected demand as a result of our attempt to drive higher yields, and temporary inefficiencies during implementation of new revenue management technology."

The disappointments triggered share price declines throughout the sector. Delta closed Thursday at $14.75, down 10% for the first four days of the week. US Airways closed Thursday at $15.69, down 7% in four days. United ( UAL) closed at $29.30, down 6%, while Alaska ( ALK) was down 4% at $13.47. Among the major airlines, only Spirit ( SAVE) was up, closing Thursday at $25.51, a gain of 1% in four days.

Late Thursday, JP Morgan analyst Jamie Baker wrote in a report that the industry is facing "continued, uninspiring demand, exacerbated by the impact of sequestration," but noted that fuel prices have fallen 25 cents per gallon since February's peak. As a result, he said, his estimates have changed little.

Still, Baker believes the impact of sequestration is real. "Government demand for air travel contributes 3% to 4% of industry revenue, and is estimated to have declined by as much as 30% in the past month," he said. Plus, there's the downstream impact to consumers that rely on government funding. And yes, that likely means negative monthly RASM for some, such as US Airways in April."

In general. airline analysts including Baker are sticking with the carriers, making the case that the industry has in fact been transformed by three key recent changes: consolidation, rational capacity management and the introduction of the ancillary fee model. CRT Capital Markets analyst Mike Derchin argued in a recent report that the group's multiple, currently around 4.7, ought to be between 5 and 6.5.